Bogus State Court Actions Used in Unico Fraud

On January 22, the U.S. Attorney’s Office in San Diego unsealed an indictment charging Mark Anthony Lopez, the former CEO of Unico Inc., with conspiracy to commit securities fraud and obstruction of justice. Much of the evidence used to indict Lopez was based on state court proceeding filed in Sarasota, Florida. Unico was a fully-reporting penny company purportedly engaged in the mining business. According to the SEC, under Lopez’s governance, what Unico really mined was investors’ pockets.

Back in 2005, Unico and Lopez found themselves in a spot. The company had issued a number of convertible debentures to Compass Capital, a firm owned by Mark Allen Lefkowitz.

Lefkowitz also represented a raft of Caribbean entities that provided financing to penny stock issuers. The debentures in question were supposed to be converted into purportedly free trading shares of Unico, despite that SEC regulations prevented the issuance of free trading shares.

What to do? Lefkowitz wanted his free trading shares. In consultation with a law firm in New York, the pair decided to exploit an obscure provision of the Securities Act of 1933. Section 3(a)(10) allows companies to issue unregistered stock to satisfy “bona fide” debts. They devised a plan for Lefkowitz’s offshore entities to sue Unico.

The New York law firm declined to implement the scheme, citing a conflict of interest, so Lefkowitz and Lopez employed Florida attorneys to file a flurry of lawsuits against Unico in the Sarasota county court. According to the SEC, after a week or so, the parties would “settle”; naturally the settlements had been worked out well in advance. Typically, the number of shares issued by Unico was far greater than that necessary to cover the debt: on average, seven times greater. Lefkowitz would then sell those shares on the open market, and kick back a portion of his profits to Lopez. In an unusual twist, the kickbacks took the form of new loans, which served to perpetuate the fraudulent scheme.

Between early 2006 and early 2008, the Lefkowtiz entities filed 34 of these bogus lawsuits!

According to the SEC, running out of implausible loans that could be said to have been made by Lefkowitz’s companies, the conspirators enlisted the aid of Steven Peacock–notorious in penny stock circles–and Shane Traveller, who cooked up their own “debts” and sued Unico. Eventually, Lefkowitz pitched the idea to another penny company, Advanced Cell Technology, which apparently embraced it with enthusiasm.

The penny stock party ended in May of 2012, when the SEC sued Lefkowitz, Compass Capital, Lopez, Unico, Peacock, Traveller, and Advanced Cell civilly. Criminal charges for Lefkowitz and Lopez followed. Lefkowtiz has already plead guilty. If convicted on all counts, Lopez could face up to 65 years in prison and a $750,000 fine.

Unico’s registration was revoked on February 7, 2013; it will never likely trade again (unless hijacked). Advanced Cell Technology continues as a fully-reporting OTC stock; its ticker is ACTC. Thanks to the scheme described above, it now has more than 2 billion shares of common stock outstanding.

U.S. Attorney Laura E. Duffy of the Southern District of California noted that fraud of this kind strikes at the “very heart” of our capital markets. She added: “The leaders of corporations–including and especially CEOs–owe a special duty to their shareholders. When these corporate leaders ignore that duty and use their positions to enrich insiders, it not only harms shareholders but also threatens to undermine confidence in our financial markets and slows our country’s ongoing economic recovery.”